Cash deposits from petrol pump sales not unexplained; demonetisation addition deleted under sections 69 and 68

ITAT Mumbai allowed the assessee's appeal and deleted the addition made as unexplained money under s.69 in respect of cash deposits of specified bank notes during the demonetisation period. The Tribunal noted that 80-90% of the petrol pump's sales were consistently in cash over several years and that the AO had accepted the books of account and cash sales as recorded. Once the source of cash deposits is accepted as cash sales and books are not rejected, the cash deposits cannot be treated as unexplained merely because receipt of SBN allegedly violated Government circulars. The addition under s.69/68 was held unsustainable.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cash deposits during the demonetization period, representing cash sales of petroleum products recorded in the regular books of account, could be treated as unexplained money under section 69A solely on the ground that receipt of Specified Bank Notes was allegedly in violation of Government/RBI notifications.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of section 69A to cash deposits representing recorded cash sales in Specified Bank Notes during demonetization

(a) Legal framework (as discussed)

2.1 The assessment was framed by invoking section 69A of the Act, treating cash deposits in Specified Bank Notes as "unexplained money". The basis for such treatment was the allegation that acceptance of such notes by the assessee, a petrol pump operator under agreement with a non-public sector oil company, was contrary to Notification S.O. 3408(E) dated 08.11.2016 which permitted acceptance of Specified Bank Notes only at petrol pumps of Public Sector Oil Marketing Companies.

(b) Interpretation and reasoning

2.2 The Tribunal noted that the Assessing Officer made the addition solely on the ground that the assessee's acceptance of Specified Bank Notes was in violation of Government instructions and that no reply was received to a show cause notice. The Assessing Officer concluded that the cash so deposited was unexplained and liable to be taxed under section 69A.

2.3 On examination of the record, the Tribunal found the factual premise of the assessment order to be incorrect. The assessee had, in fact, furnished multiple sets of details and documents before the Assessing Officer, including income tax return, audited financial statements, tax audit report, sales register, bank statements, monthly purchase and sales statements, month-wise cash book summary, VAT returns, quantitative stock details and stock register, through various letters on record. The assessment order, however, did not record any consideration of these materials or any specific adverse finding on them.

2.4 The Tribunal also found that neither the Assessing Officer nor the appellate authority had rejected the books of account or disputed the genuineness of the cash sales or the stock position. Month-wise cash and credit purchases and sales data indicated that 80%-90% of the assessee's total sales for the relevant and earlier financial years were in cash, evidencing a consistent business pattern.

2.5 The Tribunal applied the "settled legal position" that where cash sales, duly recorded in the books of account, are accepted, and the books are not rejected, the corresponding cash deposits sourced from such sales cannot be treated as unexplained under provisions dealing with unexplained income (such as sections 68/69A). Once sales have been treated as revenue receipts and offered to tax in the regular course, a further addition on the same receipts as unexplained would amount to impermissible double taxation of the same income.

2.6 The Tribunal held that the mere allegation of violation of Government/RBI notifications regarding acceptance of Specified Bank Notes, without any rejection of books or disproof of the business transactions, does not convert recorded cash sales into unexplained money for the purposes of section 69A. A regulatory or procedural infraction, even if assumed, does not by itself establish that the money so received and deposited is unexplained when its source is otherwise duly recorded and evidenced.

2.7 In reaching this conclusion, the Tribunal drew support from coordinate bench decisions where similar additions on demonetization-period cash deposits were deleted in cases involving petrol pumps, medical shops, and cooperative societies. Those decisions held, inter alia, that: (i) once sales are admitted and recorded, and VAT and other taxes are duly accounted for, treating the same receipts as unexplained under sections 68/69A is self-contradictory; (ii) contravention of RBI/Government notifications cannot, by itself, be a ground to invoke provisions on unexplained cash credits/money when the source stands disclosed; and (iii) in the absence of defects in books or stock records, or finding of abnormal or bogus sales, such additions are unsustainable.

(c) Conclusions

2.8 The Tribunal held that, in the facts of the case, the source of cash deposits-cash sales of petroleum products duly recorded in the books and supported by statutory records-stood explained and accepted; therefore, treating such deposits as unexplained money under section 69A was not sustainable in law.

2.9 The Tribunal concluded that the addition towards cash deposits during the demonetization period, made by the Assessing Officer and confirmed by the first appellate authority, was liable to be deleted. The Assessing Officer was directed to delete the impugned addition, and the appeal of the assessee was allowed.

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